UHERO Brief: The vulnerability of Hawai‘i’s nonprofit sector to cuts in federal funding

Hawai‘i’s nonprofit sector is facing budget cuts and program changes that could disrupt essential services statewide.

A new analysis by University of Hawai‘i Economic Research Organization and Hawai‘i Community Foundation provides an early warning system to identify grants, organizations and subsectors at risk, allowing local leaders to prepare responses in advance.

KEY FINDINGS INCLUDE:

Political Risk

• There are 74 federal grants to 59 Hawai‘i nonprofits — worth a total of $126 million in unpaid balances — are politically vulnerable.

More than half of this risk is concentrated in health care programs, with significant exposure also in human services, environment and education. Programs serving Native Hawaiians account for more than half of the state’s politically vulnerable funds.

Financial Risk

• Roughly 1 in 3 federally funded nonprofits depend on Washington for more than 20% of their revenue.

Human Services nonprofits are among the most financially exposed: federal direct grants provide 36% of all dollars spent in the subsector and make up 28% of the average recipient’s revenue. The environment, health care and education subsectors also show high levels of exposure.

Structural Risk

• Highly concentrated fields — such as science and technology as well as employment assistance — rely heavily on a few anchor organizations, while fragmented fields — such as youth development and sports — depend on hundreds of micro-organizations operating on shoestring budgets.

While these traits are not in themselves negative, they reveal that the results of cuts in federal funding might vary by subsector, requiring tailored policy responses.

* * * * * * * * *

Although only a small share of Hawai‘i’s nonprofits receive direct federal funds, the analysis reveals pockets of heightened vulnerability.

Cuts in health care, housing and education would also compound strains from reductions in Medicaid, SNAP (Supplemental Nutrition Assistance Program, or more commonly known as food stamps) and other safety net programs.

Federal cuts are unpredictable, but their impact in Hawai‘i can be mitigated.

Potential strategies include:

• Rapid response funding.
• Diversification of revenue streams.
• Capacity-building.
• Coordination.
• Contingency planning.

Leaders in government, nonprofit organizations, philanthropy and business — by acting together — can ensure Hawai‘i’s nonprofits remain resilient and continue to provide critical services to the state’s most vulnerable residents.

“UHERO Briefs” are circulated to stimulate discussion and critical comment. The view expressed are those of the individual author’s. While “Briefs” benefit from active University of Hawai‘i Economic Research Organization discussion, they have not undergone formal academic peer review. This “Brief” was written by University of Hawai‘i Economic Research Organization policy researcher and data scientist Trey Gordner.